TMI Blog1959 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... n July 29, 1947? The Tribunal submitted these questions for opinion of this court with a statement of case drawn up by the Tribunal on the 8th May, 1952. The reference came up for hearing before a Bench of this court and that Bench on 18th November, 1954, summarised the findings of facts which were ascertained from the statement of the case and the appellate order of the Tribunal. The findings of fact, that were summarised, were 16 in number. The order of the court mentions that, out of these 16 findings of fact, there was a dispute about the correctness of four findings of fact which were numbered in the summary of facts in the order of this court as Nos. 5, 6, 7 and 11. Consequently, the case was sent back to the Tribunal to check the accuracy of the facts as they were set out in that order of the court and to give clear findings on matters which were in dispute. The Tribunal was given the liberty to take further evidence if it found it necessary to do so. When the case went back before the Tribunal, it appears that no further evidence was given by either party. The Tribunal, therefore, proceeded to record its findings on the four disputed facts referred to above. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on the credit balances of Messrs. J.K. Kothi in the books of the assessee and at the rate of 3 per cent. reduced later on to 1? per cent. on the debit balances of Messrs. J.K. Kothi in the books of the assessee by virtue of trade custom. 6. That the assessee did not take delivery of the cloth directly from the company but took delivery of the cloth from Messrs. J.K. Kothi. 7. That detailed bills for cloth supplied to Messrs. J.K. Kothi were made out in the name of Messrs. J.K. Kothi and that Messrs. J.K. Kothi made payment of these bills to the company. Messrs. J.K. Kothi, in its turn, supplied goods to the assessee and made out a bill by way of entries in the sarkhat bahi. The assessee paid for these supplies in cash. 8. That interest at the agreed rate of 6? per cent. was, in fact, paid by the assessee to Messrs. J.K. Kothi on the difference between the price of cloth supplied and the amount deposited. 9. That all interest received by Messrs. J.K. Kothi from the assessee was retained by it and not made over to Messrs. Hari Shankar Gopal Hari. 10. That during the accounting period (10th July, 1942 to 8th July, 1943), the amounts deposited by the assessee never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of fact on this item. The reason given by the Tribunal for not recording any finding on this item is that the Tribunal considered it unnecessary to express any view on the point raised as the dealings in the chargeable accounting period 1945-46 will have no bearing on the determination of the true character of the dealings between the assessee and Messrs. J.K. Kothi during the period, 10th July, 1942, and 8th July, 1943. This refusal by the Tribunal to record any finding in respect of this fact ways brought to our notice by learned counsel for the assessee but learned counsel was unable to show that the view of the Tribunal that no finding on this point was necessary was incorrect. The chargeable accounting period 1945-46 was a subsequent period during which owning to control of cloth distribution, supplies were made by the company directly to the dealers and the distributors of cloth got from the company only a commission on the sales effected to the dealers. Dealings in this chargeable accounting period were, therefore, of a special nature and we think that the Tribunal made no mistake at all in coming to the opinion in these circumstance that the dealings during that ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 6 and, in the summary of facts, there is no mention at all of Sanwal Ram's statement. In fact, in this summary, they have, in the last sentence, given the reason which led them to record that finding. That reason is given in the following words: In fact, the entries in the sarkhat bahi taken together with the entries in the books of the company lead to this inevitable inference. Thus, the Tribunal came to the finding given by it on item No. 6 on the view that the entries in the sarkhat bahi taken together with the entire sin the books of the company could led to that inference only and to no other inference. It could not be urged by learned counsel that the entries in the sarkhat bahi or the entries in the books of account of the company were inadmissible evidence or were irrelevant for the purpose of giving the finding. As long as the finding was based on this relevant and material evidence, the earlier mention of Sanwal Ram's statement becomes immaterial, because the final conclusion is not based on that statement at all. The most favorable interpretation in favour of the assessee, in these circumstances, could be that the Tribunal, having arrived at the find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf provide an explanation why Messrs. J.K. Kothi worked as suppliers without any interest in the profits. They could anticipate that, if the profits were large, they would succeed in getting their remuneration raised retrospectively. While such possibilities exist, the fact that the benefit of Messrs. J.K. Kothi, at the time when they made the supplies, was not proportionate to the profits earned on the supplies would not, in any way, show that the supplies were not being made by Messrs. J.K. Kothi but were being made by someone else. The factor relied upon by learned counsel would, therefore, appear to be one which had no bearing on the question which the Tribunal was called upon to decide. The third and the last point raised by learned counsel to challenge the finding on items Nos. 6 and 7 was that the Tribunal paid on consideration to the arrangement which had been arrived at between the company, Messrs. J.K. Kothi and Messrs. Hari Shankar Gopal Hari with regard to the bills being made out in the name of Mr. J.K. Kothi. It was urged that the nature of the arrangement, under which the bills were made out in the name of Messrs. J.K. Kothi, was a relevant consideration showing w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an error in relying on a custom about payment of interest between the supplier of goods and the purchaser of goods on amounts standing to the credit or debit of each other in the books of account from time to time. In an income-tax proceeding, the provisions of the Indian Evidence Act do not apply. A well known mercantile custom can always be relied upon by the Income-tax Officer and the Tribunal. The custom, according to the Tribunal, was that, often enough, the supplier of goods gave goods to the purchaser on credit and charged interests on amounts outstanding against the purchaser. At the same time, the purchaser may make advance deposits against future supplies in which case he would receive interest on the amount standing to his credit with the supplier for being used for future supplies. On behalf of the assessee emphasis was laid on the fact that during the chargeable accounting period in question, the rate of interest payable to Messrs. J.K. Kothi by the assessee on amounts standing to the credit of Messrs. J.K. Kothi was higher whereas the rate of interest payable to the assessee by Messrs. J.K. Kothi in respect of amounts standing to the credit of the assessee was lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. J.K. Kothi were not suppliers at all but there was no contention or suggestion that the suppliers were Messrs. Hari Shankar Gopal Hari. Further, there was no evidence on this point. Whatever arrangement had been arrived at between Messrs. Hari Shankar Gopal Hari, Messrs. J.K. Kothi and the company, it related to financial arrangements including making out of bills but there was no mention at all as to who was to be the actual supplier of the goods to the assessee, to the sub-selling agent or to any other person to whom, the goods were supplied through the selling agent. While no specific case was put forward, the Tribunal took notice of the fact that the assessee had failed to show any correspondence which would show that supplies to it were being made by Messrs. Hari Shankar Gopal or the mills whereas the documentary evidence inevitable led to the inference that the supplies were being made by Messrs. J.K. Kothi. It was in these circumstances that the Tribunal proceeded to record its finding on item No. 5 as mentioned above. We do not, therefore, think that any finding of fact recorded by the Tribunal is vitiated by any error of law. We have now to proceed to examine what sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word borrow used in rule 2A of Schedule II of the Excess Profits Tax Act was interpreted by their Lordships of the Supreme Court as indicating a transaction of a loan which imported a positive act of lending coupled with the acceptance by the other side of the money as a loan. In the case before us, whenever the assessee became indebted to Messrs. J.K. Kothi, there was no act of lending money by Messrs. J.K. Kothi to the assessee, nor was there any acceptance by the assessee of that money as a loan. The actual nature of the transaction was the supply of goods on credit to the assessee by Messrs. J.K. Kothi and thereupon the assessee accepted the liability to pay the price of those goods to Messrs. J.K. Kothi in future together with interest on that amount of price. Such a transaction could not be a transaction of loan and no question of borrowing of money arose. Consequently, rule 2A of Schedule II of the Excess Profits Tax Act relied upon by the assessee does not apply. The average amount due from the assessee to Messrs. J.K. Kothi during the relevant chargeable accounting period can at best be treated as a debt which had to be deducted when computing the average amount of capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the amounts being admissible deductions could only arise if they could first be treated as capital. If the amounts are excluded on the ground that they are not capital at all, the question of deductions need not be examined and, in our opinion, this average sum claimed as capital by the assessee has been rightly disregarded when computing the average amount of capital employed in the relevant chargeable accounting period by the assessee as it did not represent, at any stage, the capital employed in the business. For these reasons, the first question referred to us by the Tribunal must be answered in the affirmative. The second question, as framed by the Tribunal, is, in our opinion, very vague, because the Tribunal, in that question, refers to one observation of the Tribunal contained in its remand order dated 20th March, 1937, and to all the observations in the other preceding orders. The question, when framed, should have referred to the particular observation in respect of which our opinion was sought. In these circumstances, Shri Satish Chandra, learned counsel for the assessee, drew our attention to the appellate order of the Tribunal, in paragraph 5 of which the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Order XLI, rule 23, of the Code of Civil Procedure. It is now a well established principle that, if an appellate court remands a case under Order XLI, rule 25, of the Code of Civil Procedure, it continues to remain seized of the case during the period that the remand order is given effect to and only gives its decision subsequently when the finding or report called for in the remand order has been received and considering. In these circumstances, the view expressed at an earlier stage of the case, which has not yet been decided by the appellate court, do not bind that appellate court when giving its final decision. On that analogy, in the present case, the Tribunal, when giving its final judgment on the 29th of July, 1947, could not be bound by any observations or findings which may have been recorded at the time of making any of the earlier remand orders. By none of these remand orders had the Tribunal ceased to exercise jurisdiction in the appeal, so that it remained open to the Tribunal to reconsider its views when finally deciding the appeal. This expresses our opinion on the second question. As a result, the reference is answered in accordance with our views expressed ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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